Warsh Hearing, Fresh Earnings Next Amid War Fears

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Tuesday, April 21st. Negotiations between Iran and the U.S. before the ceasefire ends tomorrow could take center stage today, assuming they happen, along with a Senate hearing on President Trump's pick to chair the Federal Reserve. As of late Monday, the Strait of Hormuz remained closed, and it was unclear if the Iranian delegation would show up to plan talks in Pakistan. President Trump threatened to attack Iran again if the ceasefire expires without progress, though he reneged on a similar threat two weeks ago before ceasefire took effect.

0:59Back home, about 90 S &P 500 companies deliver earnings this week, kicking off today with results from GE Aerospace, 3M, and UnitedHealth Group. United Airlines reports later, and tomorrow afternoon features Tesla. A couple large defense firms, RTX and Northrop Grumman, also unveil results this morning. GE Aerospace and Boeing, which reports later this week, offer a look under the surface at the industrial sector. the third best S &P sector performer year-to-date, with gains of nearly 12%. Hopes for industrial recovery, shaped by stronger manufacturing readings the last few months, would likely improve if these firms impressed.

1:42Preliminary April S &P global manufacturing data on Thursday provides the next broader look after a solid March performance. Consumer demand, meanwhile, comes into view later today when United Airlines reports Delta, which reported earlier this month, maintained its guidance despite higher fuel prices, but also discussed reducing capacity to deal with the fuel situation. The question is whether United and other airlines follow suit, which could push ticket prices even higher and perhaps quell flying demand. Still, most of the earnings from discretionary and industrial firms that could reflect higher oil prices haven't arrived yet, and the next two weeks could provide more clarity.

2:29The spotlight turns to the Fed at today's 10 a.m. Eastern Time Senate Banking Committee confirmation hearing for Kevin Walsh, President Trump's nominee to succeed Powell. Walsh is expected to answer questions at the hearing, meaning he could be asked to discuss economic issues like inflation. With his expected ascent to the chairmanship, his comments could begin to take on more weight from a market perspective. That said, the hearing holds controversy and timing is tight before Fed Chairman Jerome Powell's term ends May 15th. We still have the issue of Senator Tom Tillis blocking any vote on Warsh until the criminal investigation of Powell is resolved, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab.

3:15Tillis is fine with the confirmation hearing taking place, but he won't vote for confirmation until that investigation is over. Powell has indicated he'll stay on as temporary chairman if there is a delay past May 15. Warsh has backed rate cuts based in part on what he sees as improving U.S. productivity that could keep inflation checked. As of late Monday, odds of a Fed rate pause at the Fed's meeting next week topped 99 percent, according to the CME FedWatch tool. Policymakers sounded hesitant last week about changing rates anytime soon, and that included Fed Governor Christopher Waller, who early this year voted to cut rates by 25 basis points, though he was the minority that time.

4:00Last week, Waller sounded cautious about rate cuts due to geopolitical shocks and higher inflation, media reports noted. The Fed is now in its silent period ahead of the meeting, removing one possible source of volatility in coming days. That said, Waller does speak again this afternoon, though his remarks on modernizing Reserve Bank operations don't appear likely to focus on the economy. Tesla is the key earnings report to watch this week, starting the mega-cap reporting season and followed by five other Magnificent Seven stocks next week. The mega-caps often help determine overall market direction with their earnings and have often seen their stocks descend following results the last few quarters.

4:45Heavy spending remains a concern for many mega caps, though initial reports from companies like ASML in Taiwan Semiconductor Manufacturing showed continued strong demand for AI-driven technology. In terms of data, it's a light week. However, today brings March retail sales, which investors will likely watch for any impact from the oil spike. Analysts expect a 1.3 % monthly rise, which sounds impressive until it's clear that the report doesn't adjust for inflation, meaning rising prices lead to rising sales. More important will be retail sales excluding gasoline, along with the under-the-radar reading on control group retail sales, which feed into the government's gross domestic product or GDP calculation and excludes sales from auto dealers, building materials stores, and gas stations.

5:38On a related note, the most recent Atlanta Fed GDP Now estimate stayed at a tepid 1.3%, which would follow even poorer fourth-quarter GDP growth of 0.4 % on an annual basis. A new estimate is due today. Technically, the market appears to be near-term overbought. This means companies reporting may have a high bar to satisfy investors. Trading volume has been relatively low lately, meaning the sharp rally early this month might come into question for possible lacking conviction. However, it does seem there's simply less selling interest amid hopes the war can quickly be put behind. Market breadth is quote-unquote middling, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research, who noted just 10 percent of S &P 500 stocks recently made new 52-week highs.

6:32Taking a deeper dive, there's been a rotation from steep hedging in the options market to far more call buying over the last couple of weeks, especially in some of the big tech names and among institutional buyers. Major indexes tumbled Monday, breaking a 13-session win streak for the Nasdaq composite. War concerns and rising oil prices put a lid on the rally, though the market generally held up better than overnight futures trading earlier Monday would have suggested. Sentiment improved quickly in early to mid-April, with the S &P 500's relative strength index moving from oversold to overbought in just 11 sessions.

7:12That was the fastest move from one to the other since 1982, and implies investors are grabbing onto positive geopolitical news and eager to put the war behind them. That isn't their decision to make, however, and new escalation could drive oil prices higher, weighing on stocks. That said, the market seems less headline-sensitive now than a few weeks ago, especially when it comes to negative posts from the White House. Even with the escalation of tensions over the weekend, the SIBO Volatility Index, or VIX, sometimes called the Fear Index, rose only slightly Monday and didn't claw back above 20, a traditional dividing line between calm and concern.

7:55Only a handful of S &P 500 sectors advanced Monday, led by cyclical materials, financials, and industrials. Financials dominated the start of earnings season, and results have generally been good, though revenue hasn't impressed as much as earnings per share generally. Communication services brought up the rear on Monday's sector calendar, hurt by softness in shares of Meta Platforms, one of the largest constituents. In individual trading Monday, Marvell Technologies surged more than 6 % after a report in The Information said Marvell is talking with Google about building two new AI chips. Broadcom, which recently agreed to produce future versions of Google's AI chips, according to CNBC, fell 1.9 % on the news.

8:46Magnificent Seven names did poorly Monday, possibly a profit-taking pullback after their sizzling rally last week. Alphabet fell 1%, Tesla was off 2%, and Amazon lost nearly 1%. NVIDIA flattened near$200, and Apple kept up its rally. Airline shares fell due to rising tensions in the Middle East and escalating costs of oil. United Airlines, which reports this afternoon, fell 3%, and Delta Airlines dropped almost 1%. percent. Cruise line shares also sank, while energy stocks generally rose. Monday's weakness at Meta Platforms came after Reuters reported the company plans to reduce its workforce by around 8 ,000 in its initial round of layoffs.

9:34It was announced last month that the company planned to lay off roughly 20 percent of its employees, though timing was unclear. AST Space Mobile fell almost 6 % after a failed satellite launch over the weekend. Chip stocks, which began Monday lower, turned higher toward the end of the session. A PHLX semiconductor index is enjoying its longest win streak since 2002, Barron's reported. And small cap stocks continued their advance Monday. The Russell 2000 climbed more than 0.5 % and was the only major index in the green. Year-to-date, the Russell 2000 is easily outpacing both the S &P 500 index and the NASDAQ 100.

10:22The Dow Jones Industrial Average slipped 4.87 points Monday, or 0.1%, to 49 ,442.56. The S &P 500 index dropped 16.92 points, or 0.24%, to 7 ,109.14. And the NASDAQ Composite gave back 64.09 points, or 0.26%, to 24 ,404.39. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash marketupdate or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

11:20For important disclosures, see the show notes and schwab.com slash market update podcast.